CADENCE DESIGN SYSTEMS, INC. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q (this "Quarterly Report") and in conjunction with our Annual Report on Form 10-K for the fiscal year endedDecember 28, 2019 . This Quarterly Report contains statements that are not historical in nature, are predictive, or that depend upon or refer to future events or conditions or contain other forward-looking statements. Statements including, but not limited to, statements regarding the extent and timing of future revenues and expenses and customer demand, statements regarding the deployment of our products and services, statements regarding our reliance on third parties, statements regarding the anticipated impact on our business of the COVID-19 pandemic and related public health measures, and other statements using words such as "anticipates," "believes," "could," "estimates," "expects," "forecasts," "intends," "may," "plans," "projects," "should," "targets," "will" and "would," and words of similar import and the negatives thereof, constitute forward-looking statements. These statements are predictions based upon our current expectations about future events. Actual results could vary materially as a result of certain factors, including, but not limited to, those expressed in these statements. We refer you to the "Risk Factors," "Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and "Liquidity and Capital Resources" sections contained in this Quarterly Report, and the risks discussed in our otherSecurities and Exchange Commission ("SEC") filings, which identify important risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report. All subsequent written or oral forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. We do not intend, and undertake no obligation, to update these forward-looking statements. Business Overview We enable our customers to develop electronic products. Our products and services are designed to give our customers a competitive edge in their development of electronic devices and systems, systems-on-chip ("SoCs"), integrated circuits ("ICs") and increasingly sophisticated manufactured products. Our products and services do this by optimizing performance, minimizing power consumption, shortening the time to bring our customers' products to market and reducing their design, development and manufacturing costs. We offer software, hardware, services and reusable IC design blocks, which are commonly referred to as intellectual property ("IP"). Our strategy, which we call Intelligent System Design™, is to provide the computational software technologies necessary for our electronic system and semiconductor customers to develop electronic products across a variety of vertical markets including consumer, hyperscale computing, mobile, communications, automotive, aerospace and defense, industrial and healthcare. Our products and services enable our customers to develop complex and innovative electronic products, so demand for our technology is driven by our customers' investment in new designs and products. Historically, the industry that provided the tools used by IC engineers was referred to as Electronic Design Automation ("EDA"). Today, our offerings include and extend beyond EDA. We group our products into categories related to major design activities: •Custom IC Design and Simulation; •Digital IC Design and Signoff; •Functional Verification; •IP; and •System Design and Analysis. For additional information about our products, see the discussion in Item 1, "Business," under the heading "Products and Product Strategy," in our Annual Report on Form 10-K for the fiscal year endedDecember 28, 2019 . During the first quarter of fiscal 2020, we completed our acquisitions of AWR and Integrand. The aggregate cash consideration for these acquisitions of approximately$196 million was allocated to the assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition dates. These acquisitions enhance our technology portfolio to address growing radio frequency design activity, driven by expanding use of 5G communications. These acquisitions have increased expenses, including amortization of acquired intangible assets, more than revenue during the first three quarters of 2020 and are expected to continue to increase expenses more than revenue for the remainder of fiscal 2020. Management uses certain performance indicators to manage our business, including revenue, certain elements of operating expenses and cash flow from operations, and we describe these items further below under the headings "Results of Operations" and "Liquidity and Capital Resources." 19 -------------------------------------------------------------------------------- COVID-19 Impact InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout theU.S. and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. We are unable to accurately predict the full impact that COVID-19 will have on our results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures. Our compliance with these containment measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our key customers, suppliers (including contract manufacturers) and other counterparties, for an indefinite period of time. To support the health and well-being of our employees, customers, partners and communities, a vast majority of our employees are still working remotely as ofOctober 19, 2020 . The COVID-19 pandemic has caused some volatility in our usual delivery timing for our hardware and IP products to certain customers. Many of our customers are working remotely, and, in some cases, we have experienced delivery lead times that are longer than normal because of delays in getting access to customer sites to complete our deliveries. In other cases, the amount of our hardware and IP products that we have been able to deliver has been greater than we originally anticipated at the beginning of the respective period. We have also received numerous COVID-19 pandemic-related requests from our customers to allow them to delay their payments to us, while we continue to provide services to these customers. Because of the significant uncertainty regarding the amount that we can collect from customers that are requesting delays to their payment commitments, we have reduced the revenue for the applicable contracts to an amount that we now expect to collect from these customers. In addition, during the first quarter of fiscal 2020, we borrowed$350.0 million under our revolving credit facility as a precautionary measure to provide additional liquidity in light of global economic uncertainty and financial market conditions caused by the COVID-19 pandemic. We expect that current cash and cash equivalent balances and cash flows that are generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months. See Part II, Item 1A, "Risk Factors" for additional information on the impact of COVID-19. Critical Accounting Estimates In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our condensed consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as ofOctober 19, 2020 , the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. For further information about our critical accounting estimates, see the discussion in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Critical Accounting Estimates" in our Annual Report on Form 10-K for the fiscal year endedDecember 28, 2019 . New Accounting Standards Not Yet Adopted For additional information about the adoption of new accounting standards, see Note 1 in the notes to condensed consolidated financial statements. Results of Operations Financial results for the three and nine months endedSeptember 26, 2020 , as compared to the three and nine months endedSeptember 28, 2019 , reflect the following: •increased product and maintenance revenue, resulting from growth in hardware, IP and software, particularly inChina andthe United States ; •higher selling costs, including additional investment in technical sales support in response to our customers' increasing technological requirements; 20 -------------------------------------------------------------------------------- •continued investment in research and development activities focused on expanding and enhancing our product portfolio; and •decreased operating expenses for travel, meetings and events, and professional services due to various measures implemented to contain COVID-19. Our fiscal years are 52- or 53-week periods ending on the Saturday closest toDecember 31 . Fiscal 2019 was a 52-week fiscal year. Fiscal 2020 will be a 53-week fiscal year, with an additional week in our fourth quarter of 2020. Revenue We primarily generate revenue from licensing our software and IP, selling or leasing our emulation and prototyping hardware technology, providing maintenance for our software, hardware and IP, providing engineering services and earning royalties generated from the use of our IP. The timing of our revenue is significantly affected by the mix of software, hardware and IP products generating revenue in any given period and whether the revenue is recognized over time or at a point in time, upon completion of delivery. In any fiscal year, we expect that between 85% and 90% of our annual revenue will be characterized as recurring revenue. Revenue characterized as recurring includes revenue recognized over time from our software arrangements, services, royalties, maintenance on IP licenses and hardware, and operating leases of hardware and revenue recognized at varying points in time over the term of our IP Access Agreements. The remainder of our revenue is characterized as up-front revenue. Up-front revenue is primarily generated by our sales of emulation and prototyping hardware and individual IP licenses. The percentage of our recurring and up-front revenue may be impacted by delivery of hardware and IP products to our customers in any single fiscal period. Revenue by Period The following table shows our revenue for the three months endedSeptember 26, 2020 andSeptember 28, 2019 and the change in revenue between periods: Three Months Ended Change September 26, September 28, 2020 2019 Amount Percentage (In millions, except percentages) Product and maintenance$ 630.3 $ 548.1 $ 82.2 15 % Services 36.3 31.5 4.8 15 %$ 666.6 $ 579.6 $ 87.0 15 %
The following table shows our revenue for the nine months ended
Nine Months Ended Change
September 26, September 28,
2020 2019 Amount Percentage
(In millions, except percentages)
Product and maintenance $ 1,813.4 $ 1,639.7 $ 173.7 11 %
Services 109.6 97.1 12.5 13 %
Total revenue $ 1,923.0 $ 1,736.8 $ 186.2 11 %
Product and maintenance revenue increased during the three and nine months ended
September 26, 2020 , as compared to the three and nine months ended September 28,
2019 , primarily because of increased investments by our customers in new,
complex designs for their products that include the design of electronic systems
for consumer, hyperscale computing, mobile, communications, automotive,
aerospace and defense, industrial and healthcare. Services revenue may fluctuate
from period to period based on the timing of fulfillment of our services and IP
performance obligations.
No one customer accounted for 10% or more of total revenue during the three and
nine months ended September 26, 2020 or September 28, 2019 .
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Revenue by Product Category
The following table shows the percentage of revenue contributed by each of our
five product categories and services for the past five consecutive quarters:
Three Months Ended
September 26, June 27, March 28, December 28, September 28,
2020 2020 2020 2019 2019
Custom IC Design and Simulation 24 % 24 % 25 % 25 % 26 %
Digital IC Design and Signoff 27 % 28 % 29 % 29 % 30 %
Functional Verification, including
Emulation and Prototyping Hardware 23 % 24 % 23 % 24 % 20 %
IP 15 % 14 % 14 % 13 % 15 %
System Design and Analysis 11 % 10 % 9 % 9 % 9 %
Total 100 % 100 % 100 % 100 % 100 %
Revenue by product category fluctuates from period to period based on demand for
our products and services, our available resources and our ability to deliver
and support them. Certain of our licensing arrangements allow customers the
ability to remix among software products. Additionally, we have arrangements
with customers that include a combination of our products, with the actual
product selection and number of licensed users to be determined at a later date.
For these arrangements, we estimate the allocation of the revenue to product
categories based upon the expected usage of our products. The actual usage of
our products by these customers may differ and, if that proves to be the case,
the revenue allocation in the table above would differ.
Revenue by Geography
Three Months Ended Change
September 26, September 28,
2020 2019 Amount Percentage
(In millions, except percentages)
United States $ 269.1 $ 241.1 $ 28.0 12 %
Other Americas 10.9 12.7 (1.8) (14) %
China 114.2 58.2 56.0 96 %
Other Asia 123.2 120.1 3.1 3 %
Europe, Middle East and Africa 107.9 106.1 1.8 2 %
Japan 41.3 41.4 (0.1) - %
Total revenue $ 666.6 $ 579.6 $ 87.0 15 %
Nine Months Ended Change
September 26, September 28,
2020 2019 Amount Percentage
(In millions, except percentages)
United States $ 794.5 $ 718.8 $ 75.7 11 %
Other Americas 29.9 33.1 (3.2) (10) %
China 275.2 185.6 89.6 48 %
Other Asia 354.1 340.9 13.2 4 %
Europe, Middle East and Africa 340.2 323.4 16.8 5 %
Japan 129.1 135.0 (5.9) (4) %
Total revenue $ 1,923.0 $ 1,736.8 $ 186.2 11 %
Revenue in the United States increased during the three and nine months ended
September 26, 2020 , as compared to the three and nine months ended September 28,
2019 , primarily due to an increase in revenue for software, hardware and IP
offerings.
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Revenue in China increased during the three and nine months ended September 26,
2020 , as compared to the three and nine months ended September 28, 2019 ,
primarily due to higher than expected levels of hardware and IP sales activity,
and we expect that this will continue into the middle of the fourth quarter of
fiscal 2020.
Beginning in the second quarter of fiscal 2019, we were not able to deliver
maintenance or support for certain customers in China due to the U.S. Department
of Commerce's designation of these customers to the "Entity List." We expect
these restrictions and new or expanded trade restrictions to continue to impact
revenue from certain customers in China .
For the primary factors contributing to the change in revenue for other
geographies during the three and nine months ended September 26, 2020 , as
compared to the three and nine months ended September 28, 2019 , see the general
description under "Revenue by Period" and "Revenue by Product Category" above.
Revenue by Geography as a Percent of Total Revenue
Three Months Ended Nine Months Ended
September 26, September 28, September 26, September 28,
2020 2019 2020 2019
United States 40 % 42 % 41 % 41 %
Other Americas 2 % 2 % 2 % 2 %
China 17 % 10 % 14 % 11 %
Other Asia 19 % 21 % 18 % 20 %
Europe, Middle East and Africa 16 % 18 % 18 % 18 %
Japan 6 % 7 % 7 % 8 %
Total 100 % 100 % 100 % 100 %
Most of our revenue is transacted in the United States dollar. However, certain
revenue transactions are denominated in foreign currencies. For an additional
description of how changes in foreign exchange rates affect our condensed
consolidated financial statements, see the discussion under Item 3,
"Quantitative and Qualitative Disclosures About Market Risk - Foreign Currency
Risk."
Cost of Revenue
Three Months Ended Change
September 26, September 28,
2020 2019 Amount Percentage
(In millions, except percentages)
Cost of product and maintenance $ 64.8 $ 41.7 $ 23.1 55 %
Cost of services 17.5 19.3 (1.8) (9) %
Nine Months Ended Change
September 26, September 28,
2020 2019 Amount Percentage
(In millions, except percentages)
Cost of product and maintenance $ 175.9 $ 135.6 $ 40.3 30 %
Cost of services 56.0 57.4 (1.4) (2) %
Cost of Product and Maintenance
Cost of product and maintenance includes costs associated with the sale and
lease of our emulation and prototyping hardware and licensing of our software
and IP products, certain employee salary and benefits and other employee-related
costs, cost of our customer support services, amortization of technology-related
and maintenance-related acquired intangibles, costs of technical documentation
and royalties payable to third-party vendors. Costs associated with our
emulation and prototyping hardware products include components, assembly,
testing, applicable reserves and overhead. These costs make our cost of
emulation and prototyping hardware products higher, as a percentage of revenue,
than our cost of software and IP products.
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--------------------------------------------------------------------------------A summary of cost of product and maintenance is as follows:
Three Months Ended Change
September 26, September 28,
2020 2019 Amount Percentage
(In millions, except percentages)
Product and maintenance-related costs $ 53.4 $ 31.8 $ 21.6 68 %
Amortization of acquired intangibles 11.4 9.9 1.5 15 %
Total cost of product and maintenance $ 64.8 $ 41.7 $ 23.1 55 %
Nine Months Ended Change
September 26, September 28,
2020 2019 Amount Percentage
(In millions, except percentages)
Product and maintenance-related costs $ 142.1 $ 104.5 $ 37.6 36 %
Amortization of acquired intangibles 33.8 31.1 2.7 9 %
Total cost of product and maintenance $ 175.9 $ 135.6 $ 40.3 30 %
Cost of product and maintenance depends primarily on our hardware product sales
in any given period. Cost of product and maintenance is also affected by
employee salary and benefits and other employee-related costs, reserves for
inventory, as well as the timing and extent to which we acquire intangible
assets, acquire or license third-parties' IP or technology, and sell our
products that include such acquired or licensed IP or technology.
The changes in product and maintenance-related costs for the three and nine
months ended September 26, 2020 , as compared to the three and nine months ended
September 28, 2019 , were due to the following:
Change
Three Months Nine Months
Ended Ended
(In millions)
Emulation and prototyping hardware costs $ 21.7 $ 37.3
Other items (0.1) $ 0.3
Total change in product and maintenance-related costs Emulation and prototyping hardware costs included in the cost of product and maintenance increased during the three and nine months endedSeptember 26, 2020 , as compared to the three and nine months endedSeptember 28, 2019 , primarily due to increased deliveries of hardware products to customers and increased reserves for inventory. Cost of Services Cost of services primarily includes employee salary, benefits and other employee-related costs to perform work on revenue-generating projects and costs to maintain the infrastructure necessary to manage a services organization. Cost of services may fluctuate from period to period based on our utilization of design services engineers on revenue-generating projects rather than internal development projects. Operating Expenses Our operating expenses include marketing and sales, research and development, and general and administrative expenses. Factors that tend to cause our operating expenses to fluctuate include changes in the number of employees due to hiring and acquisitions, stock-based compensation, restructuring activities, foreign exchange rate movements, and the impact of our variable compensation programs that are driven by operating results. During the three and nine months endedSeptember 26, 2020 we experienced decreased operating expenses for travel, meetings and events, and professional services due to various measures implemented to contain COVID-19. 24 -------------------------------------------------------------------------------- Many of our operating expenses are transacted in various foreign currencies. We recognize lower expenses in periods whenthe United States dollar strengthens in value against other currencies and we recognize higher expenses whenthe United States dollar weakens against other currencies. For an additional description of how changes in foreign exchange rates affect our condensed consolidated financial statements, see the discussion in Item 3, "Quantitative and Qualitative Disclosures About Market Risk - Foreign Currency Risk." Our operating expenses for the three and nine months endedSeptember 26, 2020 andSeptember 28, 2019 were as follows: Three Months Ended Change September 26, September 28, 2020 2019 Amount Percentage (In millions, except percentages) Marketing and sales$ 123.7 $ 121.4 $ 2.3 2 % Research and development 250.9 240.5 10.4 4 % General and administrative 35.9 33.2 2.7 8 % Total operating expenses$ 410.5 $ 395.1 $ 15.4 4 % Nine Months Ended Change September 26, September 28, 2020 2019 Amount Percentage (In millions, except percentages) Marketing and sales$ 370.0 $ 354.4 $ 15.6 4 % Research and development 743.4 700.6 42.8 6 % General and administrative 105.2 97.7 7.5 8 % Total operating expenses$ 1,218.6 $ 1,152.7 $ 65.9 6 %
Our operating expenses, as a percentage of total revenue, for the three and nine
months ended
Three Months Ended Nine Months Ended
September 26, September 28, September 26, September 28,
2020 2019 2020 2019
Marketing and sales 19 % 21 % 19 % 21 %
Research and development 38 % 41 % 39 % 39 %
General and administrative 5 % 6 % 5 % 6 %
Total operating expenses 62 % 68 % 63 % 66 %
Marketing and Sales
The increase in marketing and sales expense for the three and nine months ended
September 26, 2020 , as compared to the three and nine months ended September 28,
2019 , was due to the following:
Change
Three Months Nine Months
Ended Ended
(In millions)
Salary, benefits and other employee-related costs $ 7.9 $ 23.0
Home office-related expenses - 2.0
Marketing programs (0.3) (2.1)
Travel and sales meetings (4.0) (9.3)
Other items (1.3) 2.0
Total change in marketing and sales expense
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During the three and nine months ended September 26, 2020 , as compared to the
three and nine months ended September 28, 2019 , salary, benefits and other
employee-related costs included in marketing and sales expense increased due
primarily to additional headcount from hiring and acquisitions. This increase
was partially offset by reduced costs for marketing events and travel due to
COVID-19. We expect marketing and sales expense to increase during the remainder
of fiscal 2020, as compared to fiscal 2019, due to increased employee-related
costs due to additional headcount from hiring and acquisitions.
Research and Development
The increase in research and development expense for the three and nine months
ended September 26, 2020 , as compared to the three and nine months ended
September 28, 2019 , was due to the following:
Change
Three Months Nine Months
Ended Ended
(In millions)
Salary, benefits and other employee-related costs $ 16.5 $ 44.3
Home office-related expenses - 5.3
Product development costs 1.2 4.2
Stock-based compensation (1.8) 2.7
Professional services (0.9) (2.7)
Facilities and other infrastructure costs (2.1) (4.0)
Travel (3.5) (8.3)
Other items 1.0 1.3
Total change in research and development expense During the three and nine months endedSeptember 26, 2020 , as compared to the three and nine months endedSeptember 28, 2019 , salary, benefits and other employee-related costs included in research and development expense increased due primarily to additional headcount from hiring and acquisitions. This increase was partially offset by reduced costs for travel due to COVID-19. We expect research and development expense to increase during the remainder of fiscal 2020, as compared to fiscal 2019, due to increased employee-related costs due to additional headcount from hiring and acquisitions. General and Administrative The increase in general and administrative expense for the three and nine months endedSeptember 26, 2020 , as compared to the three and nine months endedSeptember 28, 2019 , was due to the following: Change Three Months Ended Nine Months Ended (In millions) Professional services 0.2 4.4 Salary, benefits and other employee-related costs 1.3 2.1 Bad debt 0.1 1.5 University endowment - (3.0) Other items 1.1 2.5 Total change in general and administrative expense $ 2.7 7.5 Costs of professional services included in general and administrative expense increased during the three and nine months endedSeptember 26, 2020 , as compared to the three and nine months endedSeptember 28, 2019 , primarily due to consulting fees related to an internal realignment of our international operating structure, acquisition and integration-related costs. 26 -------------------------------------------------------------------------------- Restructuring and Other Charges We have initiated restructuring plans in recent years to better align our resources with our business strategy. Because the restructuring charges and related benefits are derived from management's estimates made during the formulation of the restructuring plans, based on then-currently available information, our restructuring plans may not achieve the benefits anticipated on the timetable or at the level contemplated. Additional actions, including further restructuring of our operations, may be required in the future. During the nine months endedSeptember 26, 2020 , we revised certain estimates made in connection with prior restructuring plans and recorded credits of approximately$1.3 million . For additional information about our restructuring plans, see Note 9 in the notes to condensed consolidated financial statements. Interest Expense Three Months Ended Nine Months Ended September 26, September 28, September 26, September 28, 2020 2019 2020 2019 (In millions) Contractual interest expense: 2024 Notes 3.8 3.8 11.4 11.4 Revolving credit facility 1.3 0.1 3.8 2.3 Amortization of debt discount: 2024 Notes 0.2 0.2 0.7 0.6 Other - 0.1 - 0.3 Total interest expense$ 5.3 $ 4.2 $ 15.9$ 14.6 We expect interest expense to increase during the remainder of fiscal 2020, as compared to fiscal 2019. For an additional description of our debt arrangements, see Note 2 in the notes to condensed consolidated financial statements. Income Taxes The following table presents the provision for income taxes and the effective tax rate for the three and nine months endedSeptember 26, 2020 andSeptember 28, 2019 : Three Months Ended Nine Months Ended September 26, September 28, September 26, September 28, 2020 2019 2020 2019 (In millions, except percentages) Provision for income taxes$ 4.1 $ 15.2 $ 29.7 $ 44.2 Effective tax rate 2.5 % 13.0 % 6.6 % 11.8 % The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") that was enacted bythe United States onMarch 27, 2020 did not have a material impact on our provision for income taxes for the three and nine months endedSeptember 26, 2020 . OnJune 29, 2020 , theState of California enacted legislation that, for a three-year period beginning in fiscal 2020, will limit our utilization ofCalifornia research and development tax credits to$5 million annually and will suspend the use ofCalifornia net operating loss deductions. We accounted for the effects of theCalifornia tax law change during the third quarter of fiscal 2020, the period of enactment. We recognized a discrete tax benefit of approximately$19.0 million during the third quarter of fiscal 2020 due to a partial release of the valuation allowance on ourCalifornia research and development tax credit deferred tax assets as a result of certain tax elections we intend to make in our 2019 California tax filings. Our provision for income taxes for the three and nine months endedSeptember 26, 2020 was primarily attributable to federal, state and foreign income taxes on our anticipated fiscal 2020 income, partially offset by the tax benefit of$19.0 million for the three and nine months endedSeptember 26, 2020 , related to the partial release of the valuation allowance on ourCalifornia research and development tax credit deferred tax assets and the tax benefits, of$19.3 million and$49.0 million for the three and nine months endedSeptember 26, 2020 , respectively, related to stock-based compensation that vested or was exercised during the period. 27 -------------------------------------------------------------------------------- Our provision for income taxes for the three and nine months endedSeptember 28, 2019 was primarily attributable to federal, state and foreign income taxes on our then-anticipated fiscal 2019 income, partially offset by tax benefits of$15.0 million and$35.2 million for the three and nine months endedSeptember 28, 2019 , respectively, related to stock-based compensation that vested or was exercised during each period. Our future effective tax rates may be materially impacted by tax amounts associated with our foreign earnings at rates different fromthe United States federal statutory rate, research credits, the tax impact of stock-based compensation, accounting for uncertain tax positions, business combinations, closure of statutes of limitations or settlement of tax audits, changes in valuation allowance and changes in tax law. A significant amount of our foreign earnings is generated by our subsidiaries organized inIreland andHungary . Our future effective tax rates may be adversely affected if the portion of our earnings in countries with lower tax rates were to decline. We currently expect that our fiscal 2020 effective tax rate will be approximately 9%. We expect that our quarterly effective tax rates will vary from our fiscal 2020 effective tax rate as a result of recognizing the income tax effects of stock-based awards in the quarterly periods that the awards vest or are settled and other items that we cannot anticipate. For additional discussion about how our effective tax rate could be affected by various risks, see Part II, Item 1A, "Risk Factors." Liquidity and Capital Resources As of September 26, December 28, 2020 2019 Change (In millions) Cash and cash equivalents$ 1,306.6 $ 705.2 $ 601.4 Net working capital 618.6 497.0 121.6 Cash and Cash Equivalents As ofSeptember 26, 2020 , our principal sources of liquidity consisted of$1,306.6 million of cash and cash equivalents as compared to$705.2 million as ofDecember 28, 2019 . During the first quarter of fiscal 2020, we borrowed$350.0 million under our revolving credit facility as a precautionary measure to provide additional liquidity in light of the recent global economic uncertainty and financial market conditions caused by the COVID-19 pandemic. This borrowing represents the full amount available under our revolving credit facility; however, we are entitled to request increased capacity up to an additional$250.0 million subject to the receipt of lender commitments. As ofSeptember 26, 2020 , the interest rate on our revolving credit facility was 1.50%. In addition to borrowings under our revolving credit facility, our primary sources of cash and cash equivalents during the nine months endedSeptember 26, 2020 were cash generated from operations and proceeds from the issuance of common stock resulting from stock purchases under our employee stock purchase plan and stock options exercised during the period. Our primary uses of cash and cash equivalents during the nine months endedSeptember 26, 2020 were payments related to employee salaries and benefits, operating expenses, repurchases of our common stock, cash paid in business combinations, payment of taxes on vesting of restricted stock held by employees, and purchases of property, plant and equipment. Approximately 38% of our cash and cash equivalents were held by our foreign subsidiaries as ofSeptember 26, 2020 . Our cash and cash equivalents held by our foreign subsidiaries may vary from period to period due to the timing of collections and repatriation of foreign earnings. We expect that current cash and cash equivalent balances and cash flows that are generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months.Net Working Capital Net working capital is comprised of current assets less current liabilities, as shown on our condensed consolidated balance sheets. The increase in our net working capital as ofSeptember 26, 2020 , as compared toDecember 28, 2019 , is primarily due to the timing of cash receipts from customers and disbursements made to vendors.
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